$773 million fine: MTN faults GRA tax audit procedure

MTN Group and its subsidiary have told an investors conference that the telecom company holds no provision or raise contingent liabilities in its book for a sum of $773 million fine slammed on it by Ghana’s Revenue Authority (GRA) having disputed the tax audit procedure used to determine the sum.

Recall that MTN Ghana was fined a total sum of 8.2 billion cedis, equivalent to $773 million after a tax audit conducted on the company covering five years – from 2014 to 2018. The sum requested by the Ghanaian authority comprises underpaid taxes and penalties which MTN Ghana contested strongly, saying the methodology used is not acceptable.

The telecom company notified following engagements with relevant authorities, and the GRA subsequently issued a temporary withdrawal of the assessment on 13th January. The temporary withdrawal is effective for 21 days in order to allow for further engagements between MTN Ghana and the GRA, and other parties, according to statements issued.

Of the sum requested as finance by the tax authority, MTN said the base amount was about 3.4 billion cedis, which is approximately 40% of the 8.2 billion cedis, and 60% are GRA’s interest and penalties.

Based on Ghana’s tax code, MTN is required to provide up to 30% of the fine with pay now and argue later style operating in the country. Ghana tax authority claimed that MTN Ghana under-declared its revenue by approximately 30% over the five-year period, the group told a conference.

However, MTN Group said following engagements with relevant authorities, the GRA subsequently issued a temporary withdrawal of the assessment on 13th January; a temporary withdrawal is effective for 21 days in order to allow for further engagements between MTN Ghana and the GRA, and others parties.

“.. From a financial perspective, we hold no provisions, and no contingent liabilities have been raised against this assessment in Ghana. We think that’s a very important message to give to investors and broader stakeholders.

“We are comfortable with this position, as are the auditors who conducted the audits in the period under review”, the telecom company said.

GRA requested backdated taxes plus a penalty from MTN Ghana for an amount of approximately 8.2 billion cedis for the period from 2014 to 2018, translating to about US$773 million at the current exchange rate.

“…we strongly dispute this and will defend our position. We have had a similar matter arise prior to this, in a couple of other markets, which we successfully challenged and defended, and they did not get to the assessment stage.

“So, to be clear, it is not the first time that we have seen the CDR-based methodologies being brought forth by tax authorities across our markets”, MTN stated.

After first denial by the telecom company, the GRA subsequently issued a temporary withdrawal of the assessment to enable further engagements. Ghana is currently battling a high debt-triggered economic crisis.

The country’s macroeconomic condition deteriorated following a covid-19 outbreak that disrupted the global supply chain, having a drastic effect on Ghanaians’ economic position with a surge in interest and interest rates.

Speaking on the methodologies used by Ghana’s tax authority, MTN Ghana’s chief executive Selorm Adadevoh faulted the call data record (CDR) based methodology used in the audit of MTN Ghana by the government tax authority.

“Let me preview this by noting that traditionally audits are conducted using international best-practice methodologies. For the telecom industry, revenue recognition is anchored in IFRS, which requires revenue to be based on subscriber usage of network services.

“The approaches here include cash-to-revenue analysis, which derives usage based on adjusted cash receipts. Another, which is the more common method in our industry, is the usage approach. This calculates usage based on the direct analysis of network data.

“Again, both of these methods are aligned with International Financial Reporting Standards (IFRS), Adadevoh stated.

“… should we not be satisfied with the outcome we are then able to follow the dispute processes as outlined by the tax codes in Ghana”, Group Chief Executive Ralph Mupita added.

“The sum of 3.4 billion cedis which is the base amount is the one that we did the calculation that showed that we would have under-declared revenue by 30% if this methodology was correct”. Mupita said MTN Group has seen CDR-based methodology previously in Uganda and dealt with it there.

“We saw it in Rwanda, in prior years, and, we were able to engage the authorities during those periods of time, and prevail with our own position. So, Rwanda and Uganda historically have been ones where we’ve seen this. This is not the first time, we’ve seen this before”, he added.

Reacting to a question about the process for dispute, Antoinette Kwofie MTN chief finance officer said, “…when you put in an objection, you’re supposed to pay 30%, up to 30% of the assessment, and then you can go to court and argue your case.

“So that’s the next available steps, should you want to dispute or object to that assessment”. Referencing a similar issue in Nigeria in 2018, MTN said the tax dispute will not impact dividend payment policy.

“If we are holding no provision and no contingency, we need to continue to run our business as we have communicated and committed to shareholders and broader stakeholders.

“…I think you can take a historic perspective if you go back to 2018, where we had the Attorney General matter in Nigeria, where there’s a 2 billion tax claim, but 8 billion claims from the CBN.

“The following period, we did conclude both in Nigeria and the Group, we did carry on with our dividend processes, even though we had those 10 billion claims, and we didn’t hold anything in contingency or as a provision to change that view.

“So, we remain pretty resolute on our position, and obviously, we’re respectful of the GRA’s position. But from our perspective, this is not something that forces us to make a change to our dividend process”, Mupita told investors conference.